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Noble Energy's Asset Sale Strategy to Boost Liquidity Profile

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On Nov 15, 2016, we issued an updated research report on Noble Energy, Inc. (NBL - Free Report) . The company has been selling some of its non-core assets to improve liquidity. Moreover, the eastern Mediterranean region provides excellent opportunity for production growth. However, the ongoing volatility in commodity prices and dependence on third parties could continue to dent Noble Energy’s margins.

Recently, Noble Energy reported adjusted loss of 7 cents per share for the third quarter of 2016, narrower than both the Zacks Consensus Estimate of a loss of 22 cents and the third-quarter 2015 loss of 21 cents. Moreover, the company’s total revenue improved around 11.1% year over year to $910 million in the quarter.

As said earlier, Noble Energy focuses on monetizing its non-core assets to improve liquidity. The company has divested assets worth $2.5 billion over the last four years and expects to receive divestment proceeds of $1.5 billion in 2016. It also anticipates closing the divestiture of a 3% stake in the Tamar asset in the fourth quarter.

As a result, the company exited the third quarter with liquidity of $5.8 billion. An improved liquidity profile driven by asset monetization will enable Noble Energy to pay down debts by the year end, lowering its underlying cost structure and strengthening its balance sheet. The company believes that in lieu of organically generated free cash flow and divestment proceeds, it will have over $5 billion of liquidity at the end of the year.

Meanwhile, in Israel, third-quarter sales volumes of natural gas were robust primarily on the back of the government mandate of reducing coal-fired power generation to drive natural gas sales and peak seasonal demand.

As a result of an expected increase in gas demand in Israel, Noble Energy started drilling an additional development well at Tamar. The company has contracted up to 450 million cubic feet per day (“MMcf/d”) for 15 years which is expected to contribute over $12 billion to gross revenues.

On the flip side, after exceeding the $50 mark in early June, oil prices have declined on fears of another supply glut. The drop in prices will definitely hurt Noble Energy’s prospects.

Zacks Rank & Key Picks

Currently, Noble Energy carries a Zacks Rank #2 (Buy). Other favorably placed stocks in the same space include Diamondback Energy, Inc. (FANG - Free Report) , Concho Resources, Inc. (CXO - Free Report) and Matador Resources Company (MTDR - Free Report) .

Diamondback Energy has seen 12 upward estimate revisions over the last month for 2016. The stock sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Concho Resources, another  Zacks Rank #2 stock, has seen 9 upward estimate revisions over the last month for 2016.

Matador Resources, with a Zacks Rank #2 stock, has seen 7 upward estimate revisions over the last month for 2016.

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